Best Practices to Reduce Litigation Risks When Hiring From A Competitor

February 10, 2017 (5 min read)

By: Michael P. Pappas, Michael P. Pappas Law Firm, P.C.

This article discusses ways to reduce the risk of litigation when hiring someone away from a competitor. Litigation involving trade secrets, non-compete agreements, and other postemployment restrictive covenants has grown exponentially, roughly doubling every decade since 1980. Often, these lawsuits are directed not only at the departing employee, but also at the employee’s new employer. Many unsuspecting employers have found themselves roped into costly and time-consuming litigation after hiring a competitor’s former employee.

ALTHOUGH IT IS IMPOSSIBLE TO COMPLETELY ELIMINATE the risk of litigation when hiring from a competitor, below are key issues to consider and steps to take to reduce that risk and be better prepared to defend any legal action that might arise:

Consider how litigious the industry is
Consider who you are hiring
Advise interviewers on interviewing candidates from competitors
Seek full disclosure from job candidates
Obtain written protections
Make sure the new hire leaves his or her former employer without incident
Create institutional protections (i.e., ethical walls)
Understand potential claims against the hiring employer
Effectively handle cease and desist letters
Consider pre-litigation settlement strategies
Ensure continued compliance
Leave the hiring employer an out

Know How Litigious the Industry Is

If an organization frequently hires from competitors, it should familiarize itself with general hiring customs in the industry, including how aggressively (if at all) employers seek to enforce post-employment restrictive covenants. In many industries, there is a general understanding that employees jump from employer to employer, or that employees take their personal clients with them when changing employers. In those industries (e.g., advertising, retail), enforcement of restrictive covenants is not a high priority, and litigation is relatively rare. Conversely, in hyper-competitive industries where information and clients are jealously guarded (e.g., technology, insurance), the risk of becoming embroiled in restrictive covenant litigation is significantly higher. In other fields, such as the financial sector, competitors have joined together to reduce costly litigation by establishing written protocols governing the recruitment and hiring of each other’s employees. See Protocol for Broker Recruiting. An understanding of restrictive covenant litigation practices in a particular industry can help an employer better evaluate the potential risks of hiring someone from one of its competitors.

To read the full practice note in Lexis Practice Advisor, follow this link.

Michael P. Pappas is the principal and founder of the Michael P. Pappas Law Firm, P.C., specializing in employment litigation, counseling, compliance, and administrative charge response. Prior to starting his own firm, Mr. Pappas practiced at the nation’s leading employment law firms for more than 25 years. He is also the President and C.E.O. of Employment Compliance Advisors, LLC, a legal consulting firm.